However, fund managers say decisions by global investors to short sell high carbon stocks could still impact the Australian equity market, which is heavily biased towards miners and fossil fuel producers.
Atlas Funds Management founder Hugh Dive said such a move could impact more than 20% of the local equity market. “Looking through the ASX, the entire energy industry and miners would be very exposed to this,” he said. “But you would like to see the profits drop rather than cut them because you don’t like what the company is doing. This could be a fast track to poor performance.
In the letter to APRA, AQR said its Australian clients are now exploring the use of short-selling stocks to meet decarbonization targets in two ways: to hedge the risks of remaining exposures to high-emission companies. and to increase the cost of capital for polluting industries. .
An AQR report, also sent to APRA, said investors with net zero emissions goals are short selling companies they say will see their price drop “when transition and / or climate risks physical will materialize and buy securities that are likely to be relatively less affected in such an event ”.
Super funds have long promoted the benefits of “commitment»Where keeping a stake in polluting companies can give the fund the power to influence change, especially in terms of encouraging decarbonisation.
“However, carbon-sensitive investors are unlikely to own large emitters, limiting their ability to engage (or even communicate with) such companies. We postulate that establishing a short position is more effective for engagement than not holding any position at all, ”the AQR report states.
“This is because corporate leadership teams are generally aware of what the short community thinks about their businesses, and even if they disagree, there is at least some communication.”
The AQR Australia employee, whose name was redacted from the documents, said his “multi-billion dollar” Australian customers were increasingly interested in new ways to reduce carbon emissions.
“We are in constant dialogue with these clients and can attest to the growing importance that climate change, carbon targeting and reduction and, more broadly, responsible investment principles, have become for our Australian clients,” said declared the email to APRA. “Since the publication [of the report]we have had several related meetings and discussions with our Australian customers and the feedback has been overwhelmingly positive.
AwareSuper’s chief investment officer Damian Graham said the $ 140 billion fund is currently exploring ways to use short selling to maximize returns from its research on companies, but added that targeting high emission companies was not on the agenda.
“Divestment, selling the stake and not being exposed to it, is as far as we’ve considered going,” Graham said. “Short selling is the amplification of that, but it’s not something we thought of to be honest.”
Graham said the fund would prioritize existing strategies, highlighting $ 1 billion that has been invested in renewable technologies over the past 12 months and ongoing engagement efforts with large emitters. “What we’re seeing is that a lot of these companies are thinking deeply about this. We have engaged with a number of the bigger emitters over time, many do a lot of work to think about how they are moving their businesses into a lower carbon future. “
Cbus and Colonial First State both confirmed that AQR manages the investments on their behalf, but said short selling to meet decarbonization targets is not part of the relationship. “We do not believe that short selling the shares of a carbon-intensive company is a valid approach to help reduce carbon emissions,” said a CFS spokesperson.
Senior short seller John Hempton, who founded asset manager Bronte Capital, said high-issue companies are already fertile ground for short sellers because they are “economically unsustainable, socially unsustainable. , [and] just a bad idea ”.
“You’re bypassing a lot of these charcoal burners for the same reason that you’ve already bypassed buggy whips for your horse and cart,” he said. “They feel the past.
“At one point, they’re cheap in the sense of a cigar butt, which means you’ll get a blast from them, but don’t fake it,” he said. “Some companies with high emissions are not good companies because they have no future. You see fund managers after fund managers say they own them because they’re cheap, I think they own them because they’re stupid.
Mr Hempton said short sellers are currently targeting energy giant AGL, after reporting this month a loss of $ 2.06 billion for the previous year. “The argument is what will it look like in five, seven years?” The answer is not very pretty.
APRA declined to comment.